Xi’s Power Grab Fails to Rock Diamond Industry

China Daily

Michael Clement-RIA Novosti/Camera Press/Reduxa

 

The headline is sarcastic, and I get that the diamond industry watches and reacts to market indicators practically minute to minute. However, I was struck by an early March Rapaport Tradewire market comment that China’s demand for diamonds appeared uncertain at the news of Chinese President Xi Jinping’s  bid to eliminate his own term limits.

Xi cemented his power on March 11, when the Chinese National People’s Congress amended the constitutionally mandated two-term limit, thus guaranteeing Mr. Xi will hold power well for long beyond his original cut off year 2023. 

 In most countries, and certainly from the western democratic perspective, the rise of a strongman or dictator is perceived as a source of instability. But China isn’t most places.

China is a country whose internal politics can indeed affect markets. The anti-corruption campaign that Mr. Xi launched early in his tenure did lead to a drop in purchasing luxury goods in China. As well, the government banned official trips abroad and the shopping sprees that are part of the itinerary.

What gets left out of discussions about the effect of government lead anti corruption campaigns on the luxury market is this: such campaigns don’t prevent private individuals from buying luxury goods in China or when they travel abroad.

The idea of the anti-corruption campaign, on the face of it, was to dry up the grease that government officials were accepting from businesses in search of building permits, licenses, etc.

On the political level, anti-corruption movements in modern China are often a way to reign in high-level officials at risk of developing their own sphere of influence. By most analyses, Mr. Xi has done just that on his way up to the top. The common perception, including among many Chinese citizens, is that Xi is using anti-corruption as a way to shut down dissent more broadly.

So while even many Chinese citizens may view Xi’s power grab is a bad omen for political openness in the long run, there’s no sign that the next several decades under Xi will be economically austere.

Politically, China needs a strong consumer economy to get it up to superpower status. Under Mr. Xi’s watch the Chinese economy has shifted from being primarily export lead to a more diversified economy fueled by domestic consumption.

Indeed, the Economist Intelligence Unit reports that as of fall 2016, private consumption was already the main engine of growth. By 2030, private consumption is predicted to account for 50 percent of China’s economy.

Consumer demand for diamonds is surging, according to the Hong Kong Trade Development Council, which promotes Hong Kong products in the international market.  Demand for diamonds in China for 2016-2017 was valued at 62 billion Chinese Yuan, or $9.8 billion dollars, and it’s expected to grow from five to 10 percent over the next five years.

While the global diamond trade was down in 2015 and spent 2016 recovering, the strength of both the Chinese and U.S. economies has helped stabilize the trade in 2017, according to the Antwerp World Diamond Center.

“While demand for polished diamonds worldwide was under pressure – among other reasons as the result of competition from other luxury goods such as travel and technology – we note that demand from the most important markets, namely, China and the U.S., gradually recovered.

Consequently, the polished diamond market continues to experience difficulties, but the decline is less pronounced than last year.”

(Quoted from the Antwerp World Diamond Center, February 5, 2018. Click on the link below to see the entire report).

AWDC Report

According to the Antwerp World Diamond Centre, Greater China —  defined as Mainland China, Hong Kong, Macau and Taiwan —  was in 2013 already the AWDC’s second largest trading partner.  The United States was first. In 2017 the rankings are similar, with the U.S. ranked as first, and Hong Kong (through which a lot of mainland trade is funneled) ranked at number two.

The fact that the two countries’ diamond demands mirror their respective gross national product rankings is notable. The diamond industry shouldn’t have any worry that the era of Xi Jinping will jeopardize it.

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